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1. When the government hires people to serve in the army, these people are no longer available to do other work. This choice illustrates the concept of
A) a social interest/private interest conflict.
B) opportunity cost.
C) marginal benefit.
D) an incentive.
2. Which of the following statements are correct?
I. The ʺhighest-valued alternative given up to get somethingʺ is the opportunity cost.
II. Wealthy economies donʹt experience opportunity costs.
III. Scarcity creates opportunity costs.
A) I and III
B) I only
C) I and II
D) I, II, and III
3. Opportunity cost means the
A) monetary costs of an activity.
B) accounting cost minus the marginal benefit.
C) highest-valued alternative forgone.
D) accounting cost minus the marginal cost.
4. The opportunity cost of attending college includes the cost of
A) tuition, books, and the lost wages for the hours spent studying.
B) the tuition but not the job at which you would otherwise have worked.
C) the highest valued alternative to attending college plus the cost of tuition.
D) the highest valued alternative to attending college.
5. Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie. We know that
A) it is not possible to calculate the opportunity cost of seeing the movie because the tickets were free.
B) both bear an opportunity cost of seeing the movie because they could have done other things instead of seeing the movie.
C) both bear the same opportunity cost of seeing the movie because they are doing the same thing.
D) the opportunity cost of seeing the movie is zero because the tickets were free.
6. The term ʺopportunity costʺ points out that
A) executives do not always recognize opportunities for profit as quickly as they should.
B) any decision regarding the use of a resource involves a costly choice.
C) not all individuals will make the most of lifeʹs opportunities because some will fail to achieve their goals.
D) there may be such a thing as a free lunch.
7. Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost of Joe attending his morning class for one hour is
A) an hour of sleep given up.
B) nothing because he is paying for his class.
C) both the tennis given up and the sleep given up.
D) an hour of tennis given up.
8. You have the choice of going to Hawaii for a week, staying at work for the week, or spending the week skiing. If you decide to go to Hawaii, the opportunity
cost is
A) working, because you would be giving up a weekʹs pay.
B) the value of working and skiing.
C) the value of working or skiing, depending on which you would have done rather than go to Hawaii.
D) None of the above if you enjoy the time spent in Hawaii.
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9. Which of the following is NOT an example of an opportunity cost?
A) By choosing to attend college, Jean was not able to continue working as an electrician; as a result, she gave up more than $85,000 in earnings while she
was in college.
B) Because David used all of his vacation time to paint his house, he was unable to visit the Caribbean last year.
C) By spending Thursday night studying for an economics exam, a student was unable to complete a homework assignment for calculus class.
D) Because Mary is now being paid a higher wage, she can afford to buy a new car even though she is moving into a bigger apartment.
10. Today, Julie attended her 12:30 Economics class. If she hadnʹt gone to class, Julie would have gone out to lunch with friends. She had other options; she
could have worked or slept in. Julieʹs opportunity cost of going to class is the
A) income she gave up.
B) lunch she gave up.
C) income, pleasure, and sleep she gave up.
D) sleep she gave up.
11. The opportunity cost of something you decide to get is
A) all the possible alternatives that you give up to get it.
B) the amount of money you pay to get it.
C) the value of the item minus the cost you paid for it.
D) the highest valued alternative you give up to get it.
12. From 8 P.M. to 10 P.M.., Susan can attend a movie, study, or talk with friends. Suppose that Susan decides to go to the movie but thinks that, if she hadnʹt,
she would otherwise have talked with friends. The opportunity cost of attending the movie is
A) two hours of time.
B) talking with friends.
C) studying.
D) talking with friends and studying.
13. On Saturday morning, you rank your choices for activities in the following order: go to the library, work out at the gym, have breakfast with friends, and
sleep late. Suppose you decide to go to the library. Your opportunity cost is
A) not clear because not enough information is given.
B) working out at the gym.
C) zero because you do not have to pay money to use the library.
D) working out at the gym, having breakfast with friends, and sleeping late.
14. A point inside a production possibilities frontier
A) could indicate that some resources are unemployed.
B) implies that too much capital and not enough labor are being used.
C) is more efficient than points on the production possibilities frontier.
D) is unattainable.
15. In the figure on the right hand side, which point represents an attainable but
inefficient production point?
A) Point L
B) Point D
C) Point N
D) Point C
16. Refer to the production possibilities frontier in the figure on the right hand side.
Which production point is unattainable?
A) Point a
B) Point b
C) Point c
D) Point e
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17. If an economy is operating at a point inside the production possibilities frontier, then
A) the PPF curve will shift inward.
B) societyʹs resources are being used to produce too many consumer goods.
C) economic policy must retard further growth of the economy.
D) societyʹs resources are being inefficiently utilized.
18. A situation in which some resources are NOT fully utilized is represented in a production possibilities frontier diagram by
A) any point on either the horizontal or the vertical axis.
B) a point inside the production possibilities frontier.
C) a point outside the production possibilities frontier.
D) the midpoint of the production possibilities frontier.
19. Scarcity is represented on a production possibilities frontier figure by
A) the amount of the good on the horizontal axis forgone.
B) the fact that there are only two goods in the diagram.
C) the fact there are attainable and unattainable points.
D) technological progress.
20. On the vertical axis, the production possibilities frontier shows ________; on the horizontal axis, the production possibilities frontier shows ________.
A) the quantity of one good; the quantity of another good
B) the quantity of a good; the price of the good
C) the quantity of a good; a weighted average of resources used to produce the good
D) the quantity of a good; the number of workers employed to produce the good
21. Using the production possibilities frontier model, unemployment is described as producing at a point
A) inside the PPF curve.
B) on either end of the PPF curve.
C) on the exact middle of the PPF curve.
D) outside the PPF curve.
22. The production possibilities frontier
A) depicts the boundary between those combinations of goods and services that can be produced and those that cannot given resources and the current
state of technology.
B) is a graph with price on the vertical axis and income on the horizontal axis.
C) is a model that assumes there is no scarcity and no opportunity cost.
D) shows how many goods and services are consumed by each person in a country.
23. A point outside a production possibilities frontier indicates
A) that resources are not being used efficiently.
B) that both goods are characterized by increasing costs.
C) that resources are being used very efficiently.
D) an output combination that society cannot attain given its current level of resources and technology.
24. The production possibilities frontier itself shows
A) the maximum levels of production that can be attained.
B) the maximum amount of resources available at any given time.
C) the maximum rate of growth of output possible for an economy.
D) combinations of goods and services that do not fully use available resources.
25. Refer to the production possibilities frontier in the figure above. Suppose a
country is producing at point a. A movement to point ________ means that
the country ________.
A) d; must give up 20 million capital goods
B) e; is not operating efficiently
C) b; is producing at an inefficient point.
D) d; gives up 10 million consumer goods.
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26. The market demand curve
A) is the demand curve for every product in an industry.
B) shows the average quantity demanded by individual demanders at each price.
C) is always flatter than an individual demand curve.
D) is the sum of all individual demand curves.
27. An increase in demand is represented by a
A) movement downward and to the right along a demand curve.
B) movement upward and to the left along a demand curve.
C) rightward shift of a demand curve.
D) leftward shift of a demand curve.
28. If the demand for a good falls when income falls, then the good is called a(n)
A) normal good.
B) regular good.
C) luxury good.
D) inferior good.
29. Good X and good Y are substitutes. If the price of good Y increases, then the
A) demand for good X will decrease.
B) quantity demanded of good X will decrease.
C) demand for good X will increase.
D) quantity demanded of good X will increase.
30. Which of the following might cause the demand curve for an inferior good to shift to the left?
A) decrease in income
B) an increase in the price of a substitute
C) an increase in the price of a complement
D) None of the above is correct.
31. Which of the following events must cause equilibrium price to rise?
A) demand increases and supply decreases
B) demand and supply both decrease
C) demand decreases and supply increases
D) demand and supply both increase
32. Which of the following is likely to have the most price inelastic demand?
A) yoga mats
B) prescription medicine
C) protein powder
D) gym memberships
33. Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags
to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is
A) 0.33.
B) 0.45.
C) 2.20.
D) 3.00.
34. For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely
applicable to this good?
A) There are many close substitutes for this good.
B) The good is a luxury.
C) The market for the good is broadly defined.
D) The relevant time horizon is long.
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35. Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
A) the equilibrium price increases, and the equilibrium quantity is unchanged.
B) the equilibrium quantity and the equilibrium price both are unchanged.
C) buyers’ total expenditure on the good is unchanged.
D) the equilibrium quantity decreases, and the equilibrium price is unchanged.
36. Total revenue
A) always increases as price increases.
B) increases as price increases, as long as demand is elastic.
C) decreases as price increases, as long as demand is inelastic.
D) remains unchanged as price increases when demand is unit elastic.
37. For which of the following goods is the income elasticity of demand likely highest?
A) water
B) diamonds
C) hamburgers
D) housing
38. Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors
constant, it follows that Tess’s income elasticity of demand is about
A) 0.32, and Tess regards handbags as inferior goods.
B) 0.32, and Tess regards handbags as normal goods.
C) 3.17, and Tess regards handbags as inferior goods.
D) 3.17, and Tess regards handbags as normal goods.
39. If two goods are substitutes, their cross-price elasticity will be
A) positive.
B) negative.
C) zero.
D) equal to the difference between the income elasticities of demand for the two goods.
40. Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method,
the cross-price elasticity of demand is
A) 1.0, and X and Y are complements.
B) 1.0, and X and Y are substitutes.
C) -1.0, and X and Y are substitutes.
D) -1.0, and X and Y are complements.
41. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
A) inelastic.
B) elastic.
C) unit elastic.
D) quite sensitive to changes in income.
42. When supply is perfectly elastic, the value of the price elasticity of supply is
A) 0.
B) 1.
C) greater than 0 and less than 1.
D) infinity.
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43. Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then
A) consumers of wheat would buy more wheat.
B) wheat farmers would suffer a reduction in their total revenue.
C) wheat farmers would experience an increase in their total revenue.
D) the demand for wheat would decrease.
44. A price ceiling is
A) often imposed on markets in which “cutthroat competition” would prevail without a price ceiling.
B) a legal maximum on the price at which a good can be sold.
C) often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price
ceiling.
D) All of the above are correct.
45. If a price floor is a binding constraint on a market, then
A) the equilibrium price must be above the price floor.
B) the quantity demanded must exceed the quantity supplied.
C) sellers cannot sell all they want to sell at the price floor.
D) buyers cannot buy all they want to buy at the price floor.
46. A tax imposed on the sellers of a good will raise the
A) price paid by buyers and raise the equilibrium quantity.
B) effective price received by sellers and lower the equilibrium quantity.
C) effective price received by sellers and raise the equilibrium quantity.
D) price paid by buyers and lower the equilibrium quantity.
47. Which of the following is not a result of rent control?
A) fewer new apartments offered for rent
B) less maintenance provided by landlords
C) bribery
D) higher quality housing
48. Which of the following is correct?
A) Rent control and the minimum wage are both examples of price ceilings.
B) Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.
C) Rent control is an example of a price floor, and the minimum wage is an example of a price ceiling.
D) Rent control and the minimum wage are both examples of price floors.
49. The tax incidence
A) is the manner in which the burden of a tax is shared among participants in a market.
B) can be shifted to the buyer by imposing the tax on the buyers of a product in a market.
C) can be shifted to the seller by imposing the tax on the sellers of a product in a market.
D) All of the above are correct.
50. If a tax is imposed on a market with inelastic supply and elastic demand, then
A) buyers will bear most of the burden of the tax.
B) sellers will bear most of the burden of the tax.
C) the burden of the tax will be shared equally between buyers and sellers.
D) it is impossible to determine how the burden of the tax will be shared.
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